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Bank of America sees Nvidia’s balance sheet commitments as undervalued
After Nvidia’s Aug. 26 results, Bank of America said the market had not fully priced the roughly $300 billion scale of its AI-related capital commitments, including buybacks and dividends of about $26 billion in the quarter.
Nvidia reported fiscal second-quarter results on Aug. 26 that included revenue of $96.2 billion, up 106% year over year, with data center revenue of $89 billion, up 117%, and gross margin at 75%, according to the company’s earnings release cited by Yahoo Finance. TheStreet also notes Nvidia returned about $26 billion to shareholders in the quarter through buybacks and dividends, leaving roughly $99 billion remaining under its buyback authorization.
Ahead of the report, Bank of America focused less on whether Nvidia would beat Wall Street expectations and more on whether the market had correctly priced the scale of Nvidia’s balance sheet actions, Yahoo Finance reported. In a note shared with TheStreet on Aug. 25, analyst Vivek Arya reiterated a Buy rating and a $350 price target for Nvidia, implying about 64% upside from the stock’s trading level at the time.
Bank of America argued that Nvidia is increasingly financing the AI ecosystem rather than only selling chips, and estimated total capital commitments of about $300 billion. The estimate was split between roughly $70 billion in direct equity investments and roughly $230 billion in residual value guarantees and backstops, with the note highlighting large commitments such as a $30 billion investment in OpenAI.
Yahoo Finance also reported that the backstop portion includes a $105 billion backstop for SB Energy and a $125 billion backstop tied to a special purpose vehicle involving si, as described in Bank of America’s assessment. The outlet said the delivered results made the bank’s view harder to dismiss.